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THE MINISTRIES

INTER-MINISTERIAL CIRCULAR No. 13-TTLB OF OCTOBER 8, 1997 GUIDING THE HIRING OF MANAGERIAL ORGANIZATIONS TO MANAGE BUSINESS ACTIVITIES OF FOREIGN INVESTED ENTERPRISES

Pursuant to the Law on Foreign Investment in Vietnam adopted on November 12, 1996 by the National Assembly of the Socialist Republic of Vietnam;

Pursuant to Decree No. 12-CP of February 18, 1997 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam;

Pursuant to Decree No. 75-CP of November 1, 1995 of the Government defining the functions, tasks and organizational structure of the Ministry of Planning and Investment;

Pursuant to Decree No. 178-CP of October 28, 1994 of the Government defining the tasks, powers and organizational structure of the Ministry of Finance.

The Ministry of Planning and Investment and the Ministry of Finance hereby issue the following Circular to guide the hiring of managerial organizations to manage business activities of foreign invested enterprises:

I. OBJECTS AND SCOPE OF REGULATION:

1.1. This Circular provides for the hiring of managerial organizations to manage business activities of foreign invested enterprises which include joint venture enterprises and enterprises with 100% foreign investment capital (hereafter referred to as enterprises for short).

1.2. The hiring of a managerial organization to manage business activities of an enterprise is the hiring of management and commercial operation of a project of the enterprise in the course of its business.

1.3. To be allowed to hire a managerial organization, a foreign invested enterprise must meet the following conditions:

- The hiring of a managerial organization must be based on the enterprise's business management need and the expected business efficiency of such hiring.

- The hiring of a managerial organization shall apply only to the following businesses: hotels, offices and apartments for lease, golf courses, sport clubs, entertainment centers, hospitals, schools and some other businesses that require managerial expertise needed by the enterprise.

- The hiring of a managerial organization to manage business activities must not alter or have adverse impacts on the operation objectives of the project and the interests of the State of Vietnam as stipulated in the investment license.

II. MANAGEMENT CONTRACTS

2.1. The hiring of a managerial organization to manage business activities of an enterprise shall be conducted through a management contract signed between the enterprise and the managerial organization. The signing of a management contract must be decided by the Managing Board (if the enterprise is a joint venture enterprise) or the investor (if the enterprise is an enterprise with 100% foreign investment capital).

2.2. The duration of a management contract shall be agreed upon by the enterprise and the managerial organization and indicated in the contract but it must not exceed 10 years from the effective date of the contract. In case of necessity, the parties may make an application for extension and submit it to the investment license granting agency for consideration and approval.

The management contract shall become effective only after it is approved by the investment license granting agency.

2.3. The contents of a management contract shall be agreed upon by the concerned parties but must contain the following principal points:

- The name, address, business objective and scope of the enterprise;

- The name, address and the business certificate of the managerial organization;

- The responsibilities of the enterprise and the managerial organization;

- The relationship between the General Director and Deputy General Director(s) of the enterprise and the managerial organization and the executive director or directors of the sections appointed by the managerial organization to directly manage the enterprise's business activities;

- The principles on financial revenues and expenditures and use of bank accounts;

- The recruitment and use of labor;

- The number of foreign employees appointed by the managerial organization and the expenses on their wages, meals and accommodation, traveling, paid leave...The plan on the training of Vietnamese substitutes;

- The effective duration of the contract. Cases in which the contract may terminate ahead of time.

- The use of the name or sign board of the project;

- The management charge to be paid to the managerial organization;

- The conditions binding the responsibility of the managerial organization for the enterprise's production and business results;

- The financial obligations of the managerial organization toward the State of Vietnam;

- The procedures for settling disputes between the parties.

III. MANAGEMENT CHARGE

3.1. The management charge payable to the managerial organization shall be agreed upon by the parties on the basis of:

- The nature, size and category of the project.

- The prestige, business management capability and responsibilities of the managerial organization.

- The effectiveness brought about by the activities of the managerial organization.

- The hiring of package management of the project or the hiring of management of each project item.

- The market competition.

3.2. The management charge to be paid by the enterprise to the managerial shall be defined in the management contract as part of the total managerial cost of the enterprise, and shall thus account for only a reasonable percentage.

The management charge includes: the basic charge, incentive charge and charges for consultancy, marketing, booking and use of the sign board and name. In principle, the parties may choose different modes of calculating the management charge rates but in any case the total management charge payable to the managerial organization compared to the turnover and gross operating profit must not exceed the level specified in the enclosed appendix.

The gross operating profit (GOP) used for calculating the incentive charge is the remainder of the turnover minus operational costs (excluding basic depreciation, asset insurance premiums, loan interests payable by the enterprise and profit tax).

IV. OPERATION OF THE MANAGERIAL ORGANIZATION AND PROCEDURES FOR APPROVAL OF A MANAGEMENT CONTRACT

4.1. The managerial organization hired by an enterprise must be established and have its registered business activity in the field it is hired to manage and must abide by the provisions of Vietnamese law in the course of its operation.

4.2. The managerial organization operates under the name and with the seal and bank accounts of the enterprise. It shall be assigned various tasks and entitled to receive the charges defined in the management contract and shall take responsibility to the enterprise and before Vietnamese law for the exercise of its rights and the performance of its obligations under the management contract.

4.3. The managerial organization shall have to fulfill its financial obligations toward the State of Vietnam in accordance with current provisions of Vietnamese law. The enterprise shall have to deduct tax amounts payable by the managerial organization and pay them on behalf of the latter to the State of Vietnam.

4.4. The management contract must be submitted to the investment license granting agency for consideration and approval. The dossier to be submitted for approval includes:

- The application for approval of the management hiring contract.

- 01 set of the management contract (the original) in Vietnamese and a universal foreign language and the contracts (if any) for consultancy, services and use of the signboard or name.

- The minutes of the meeting of the enterprise's Managing Board (if the enterprise is a joint venture) ratifying the management contract or the approval of the investor (if the enterprise is 100% foreign invested)

- The documents certifying the legal status, experiences, prestige and managerial capability of the managerial organization.

4.5. The time limit for considering and approving the management contract by the investment license granting agency shall not exceed 30 days from the date of receipt of the full and valid dossier. Past this time limit, if it does not approve, the investment license granting agency shall notify in writing the enterprise and the managerial organization of the reason therefor.

4.6. Under all circumstances, the enterprise shall take responsibility before Vietnamese law for all the operations of the managerial organization regarding the issues related to the managerial operations defined in the management contract. The managerial organization shall directly take responsibility before Vietnamese law for their operations outside the scope of the management contract.

4.7. The General Director and Deputy General Director(s) of the enterprise shall have to support and monitor the operation of the managerial organization, make recommendations to the Managing Board or the investor on handling breaches of the contract committed by the managerial organization.

4.8. If, in the course of operation, the managerial organization seriously violates provisions of Vietnamese law, the investment license and the management contract, the investment license granting agency shall be entitled to issue a decision to terminate the legal effect of the management contract.

4.9. All disputes between the managerial organization and the enterprise and between the managerial organization and other enterprises in Vietnam shall be settled according to current provisions of Vietnamese law.

V. ORGANIZATION OF IMPLEMENTATION

5.1. The management contracts of the enterprises which have been approved by the former State Committee for Cooperation and Investment or the Ministry of Planning and Investment now shall not have to be submitted to the Ministry of Planning and Investment unless they are adjusted, amended or supplemented.

The management contracts which are signed prior to the effective date of this Circular but not yet approved by the Ministry of Planning and Investment or the investment license granting agency shall also comply with the provisions of this Circular.

5.2. For the enterprises licensed by the People's Committees of the provinces and cities directly under the Central Government or the Management Boards of the industrial zones and export processing zones which are assigned or authorized to grant investment licenses, after considering and approving management contracts, the People's Committees of the provinces and cities directly under the Central Government or the Management Boards of the industrial zones and export processing zones shall have to send 01 copy of each contract to the Ministry of Planning and Investment.

5.3. This Circular takes effect from October 23, 1997. All the earlier provisions regarding the hiring of managerial organizations now cease to be effective.

For the Minister For the Minister of

of Finance Planning and Investment

Vice Minister Vice Minister

PHAM VAN TRONG NGUYEN NHAC